A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. They are spread among huge network of computers with no trace of its origin point, that is the thing with cryptocurrency, one cannot track its transaction or from where this digital currency is coming from which makes it harder to get legality in India as it provides a decentralized and secure alternative to existing currencies and pricing systems, marking a paradigmatic alternative in the conventional financial sector.
There are more than 25,000 cryptocurrencies circulating in the world with the global cryptocurrency market being valued at over $2.41 Trillion.
Issue with controlling factors
Cryptocurrency fundamentally relies on the usage and integration of blockchain secured by cryptography to control the creation of new units and verify the transfer of funds without the need for a central authority. The decentralized, cryptographically secured nature of blockchains is what enables the autonomous, peer-to-peer management of cryptocurrencies.
Cryptography is the foundation of blockchain technology and is crucial for securing cryptocurrency transactions. Cryptocurrencies use asymmetric cryptography, which involves public and private keys, to authenticate transactions and ensure their integrity. Hashing algorithms like SHA-256 are also used to link blocks in the blockchain and maintain the immutability of the transaction record.
The blockchain is a distributed, decentralized public ledger that records all cryptocurrency transactions and uses cryptography to secure the ledger and prevent double spending. Each node or a block in the blockchain contains a cryptographic hash of the previous block, creating an unbroken chain.
What this does is create a space in which one authority cannot track the origin of any transaction which gives rise to ambiguity.
Concerns around crypto
Due to its decentralized structure, a number of concerns has been raised for cryptocurrency such as anonymity, impossibility of fair valuation due to not being backed by any real asset unlike fiat currencies which are backed fractionally by gold reserves, lack of intrinsic value, volatility in their quotes and lack of fiat from central banks make the investors in these cryptos vulnerable to wild fluctuations, investor redressal impossibility and high cost of mining of these crypto coins.
All these factors gives rise to aiding criminals/terrorists, vulnerability to cyber-crimes and ultimately becomes threat to Regulated Financial System due to unregulated means of financing.
Regulation in India
India doesn’t have a specific law for virtual currencies (VCs) yet. However, it’s making changes to existing laws to deal with them:
- The Companies Act now requires reporting of virtual digital assets (VDAs).
- The Prevention of Money Laundering Act (PMLA) now includes transactions involving VDAs.
- Income tax laws have been updated to tax VDAs.
Furthermore, VDAs have gained substantial legal recognition in India, further legitimizing the industry.
The government has taken the following actions:
- Introduced a 30% tax on income from the transfer of VDAs, as well as a 1%Tax Deducted at Source (TDS).
- Expanded the Prevention of Money Laundering Act, 2002 to cover VDA-related activities, subjecting the industry to anti-money laundering compliance.
- Initiated enforcement actions against VDA exchanges for alleged violations of existing laws, such as the Foreign Exchange Management Act.
- The Advertising Standards Council of India (ASCI) has introduced guidelines for advertising of VDAs, requiring prominent risk disclaimers.
These regulatory and enforcement actions by the financial and government authorities in India reflect the evolving significance and growing acceptance of the VDA industry in the country.
Author: Shubham Dixit is a third-year B.B.A LL.B student at Bharati Vidyapeeth’s New Law College, Pune.
